What records does a sole proprietor in Ontario need to keep?
A sole proprietor in Ontario must keep business records that support the income and expenses reported on their personal income tax return. These records include invoices issued to clients, receipts for business expenses, bank statements showing business transactions, records of any assets used in the business, and payroll records if you have employees.
The Canada Revenue Agency requires that records be kept for at least six years from the end of the tax year to which they relate. This allows the CRA to audit returns for up to the applicable limitation period. Certain records — such as records relating to property you still own — must be kept for as long as you own the property plus six years after the year you dispose of it.
Business records can be kept in electronic or paper form. Electronic records must be in an accessible format that can be read by CRA systems if audited. Simply photographing receipts with a phone and storing them digitally is acceptable as long as the images are legible and organized.
Separate records from personal records as much as possible — even though a sole proprietor's business and personal finances are technically the same, mixing them together makes it very difficult to demonstrate business income and expenses accurately in an audit.
Key takeaways
- CRA requires business records to be kept for at least six years from the relevant tax year.
- Records include invoices, expense receipts, bank statements, and payroll records.
- Electronic records are acceptable if they are legible and accessible in a CRA-readable format.
- Keep business and personal records as separate as possible for clarity in an audit.